Corporate Strategy Flashcards
The company is a recent phenomenon
Even where economies of scale encouraged larger production units, the limited size of local markets constrained the growth of individual firms
With the increasing size of firms, management developed as a specialized and professional activity.
Modern corporations utilized administrative hierarchies and standardized systems of decision-making, financial control, and information management. These structures enabled companies to expand the size and scope of their activities.
Consolidation through merger and acquisition resulted in the
the appearance of the first “holding companies” during the late 19th century.
Strategy and Structure Growth Pattern
Simple Structure. Functional Structure. Multidivisional structure. Matrix Structure. Network Structure. Joining point: Coordination and control problems
The corporate-level strategy is concerned with two key issues:
in what product markets and businesses the firm should compete.
and how corporate headquarters should manage those businesses.
The corporate-level strategy definition
“Corporate strategy is the way a company creates value through the configuration and coordination of its multimarket activities” (Montgomery and Collis, 1997, p. 5)
The corporate-level strategy definition has 3 important aspects:
- Value Creation as the ultimate purpose of corporate strategy.
- The focus on the multimarket scope of the corporation (Configuration), including its product, geographic, and vertical boundaries.
- The emphasis on how the firm manages the activities and businesses that lie within the corporate hierarchy (Coordination).
corporate-level strategy aim
it aims a concept known as synergy
synergy
where the value added by the corporate office adds up to more than the value would be if the different businesses in the corporate portfolio were separate and independent.
synergy in coporate level
In fact, the degree to which corporate-level strategies create value beyond the sum of the value created by all of a firm’s business units remains an important research question
corporate level 3 Key Issues
Firm’s directional strategy
Firm’s portfolio strategy
Firm’s parenting strategy
Firm’s directional strategy
The firm’s overall orientation towards growth, stability or retrenchment
Growth
Stability
retrenchment
Firm’s portfolio strategy
-The industries or markets in which the firm competes Coordination of cash flow among units. -resource commitment to best procedure. -Resource commitment to new product. -Ex, BCG matrix
Firm’s parenting strategy
-The manner in which management coordinates activities and transfers resources and cultivates capabilities among product lines and business units.
-building of coorporting synergies through resource sharing and development.
-Check strategic factors.
-examine for performance.
-Analyze fit
Synergy
Growth strategies
Concentration
Diversification
Concentration
-Vertical Backward, Forward, -Horizontal Expanding to a new geographical area increasing the range of prodicts.
Diversification
related
unrelated
Stability strategies
Maintaining the status quo; popular with small business owners who have found a niche and are happy. (Dangerous in the long run)
- Pause/proceed with caution
- No change
- Profit strategies
Retrenchment strategies
Troubled companies; poor performance weak competitive position, necessity to eliminate weaknesses that are dragging the company down.
Turnaround Captive Company Strategy Selling out Bankruptcy Liquidation
Economies of scope
Sharing Activities
Transferring core competencies
Growth strategies 2
But the decision to take action to pursue growth is never a risk-free choice for firms to make.
Indeed, effective firms carefully evaluate their growth options (including the different corporate-level strategies) before committing firm resources to any of them.
Growth strategies 2 Basic forms
Concentration
Vertical growth
Horizontal growth
Diversification Concentric Diversification (RELATED) Conglomerate Diversification (UNRELATED)
Horizontal Growth
New Geographic Markets
New products, same Markets
Why vertically integrate?
-Market Power (increase revenue)
Entry barriers
Down-stream price maintenance
Up-stream power over price
-Efficiency (lower cost)
Specialized assets & the holdup problem
Protecting product quality
Improved scheduling
vertically integrate issues
Issue # 1: What is the objective for vertical coordination? Or put differently; what efficiencies, risk-sharing, or market power advantages are being sought?
Issue # 2: What organizational form (e.g. vertical contracts, equity joint ventures, mergers & acquisitions) best achieves the desired objective(s)?
Vertical Growth
Backward integration
Forward integration
Vertical Growth
-Vertical integration Full integration Taper integration Quasi-integration Long-term contract
Transaction costs:-
The costs of negotiating, monitoring, and governing exchanges between people.
Transaction cost theory
The goal of an organization is to minimize the costs of exchanging resources in the environment and the costs of managing exchanges inside the organization
Bureaucratic costs - Internal transaction costs
Bringing transactions inside the organization minimizes but does not eliminate the costs of managing transactions. Also loss of specialized and professional activity.
Using Transaction Cost Theory to Choose an Interorganizational Strategy
Managers can weigh the savings in transaction costs of particular linkage mechanisms against the bureaucratic costs
Using Transaction Cost Theory to Choose an Interorganizational Strategy 2
- Locate the sources of transaction costs that may affect an exchange relationship and decide how high the transaction costs are likely to be
- Estimate the transaction cost savings from using different linkage mechanisms
- Estimate the bureaucratic costs of operating the linkage mechanism
- Choose the linkage mechanism that gives the most transaction cost savings at the lowest bureaucratic cost
